Armstrong World Industries Inc · NYSE:AWI
Armstrong World Industries — Investor Presentation (February 2014)
52 slides from Armstrong World Industries's investor presentation, Feb 24, 2014
Slide 1: Armstrong World Industries Investor Presentation February 2014
Armstrong World Industries Investor Presentation February 2014
Slide 2: Safe Harbor Statement
Safe Harbor Statement Our disclosures in this presentation, including without limitation, those relating to future financial results guidance, and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Those s
Slide 3: Basis of Presentation
All figures throughout the presentation are in $ millions unless otherwise noted. Figures may not add due to rounding. Basis of Presentation Explanation When reporting our financial results within this presentation, we make several adjustments. Management uses the non-GAAP measures below in managing
Slide 4: Investment Highlights
@imstrong: Investment Highlights
Slide 5: Investment Highlights
Investment Highlights Diversified $2.7 billion global building products company with leading positions in most key markets and productsLeadership team executing strategy to drive strong EBITDA and ROIC growth despite weak end markets through disciplined focus on costs and pricing, driving organic gr
Slide 6: Global Business Overview
@ymstrong: Global Business Overview Ni
Slide 7: Diversified Global Building Products Company
Diversified Global Building Products Company Leading global manufacturer of hardwood and resilient floors and suspended ceiling solutions for use in renovation and new construction$2.7 billion in sales from continuing operations in 201335 manufacturing plants in 8 countriesApproximately 8,700 employ
Slide 8: 2013 Business Segment and End-Use Profile
2013 Business Segment and End-Use Profile 8 Diversified revenue profile across products and end-use applications (CHART) $920 $535 $1,265 $2,720 45% 20% 25% 10% 65% 30% 5% 65% 35% 30% 5% 45% 20% * Residential products are sold in North America only North America R&R in Americas is closer to 80%
Slide 9: EBITDA Growth in All Businesses Despite Challenging Macro Environment
(CHART) EBITDA Growth in All Businesses Despite Challenging Macro Environment 9 2010 EBITDA 2013 EBITDA Strong EBITDA growth during challenging macro environment $371M $310M Worldwide Ceilings Worldwide Resilient Wood 2010 2013 2010 2013 2010 2013 Sales $1.1B $1.3B 10.7% $1.0B $920M (9.7%) $480M $53
Slide 10: Global Revenue Mix and Product Mix
Global Revenue Mix and Product Mix 10 Sales by End-use Segment (2) Office Retail Education Healthcare Segment % of Business Office 30% - 40% Retail 20% - 30% Education 15% - 25% Transportation / Other 10% - 20% Healthcare 5% - 15% (CHART) (CHART) Ceilings Commercially oriented business with diverse
Slide 11: Where We Make Money
Where We Make Money 11 (CHART) $250M $325M Improved profitability; leveraged to rebound in North American Market Ceilings 29% 2010 2013 Worldwide ABP Sales $1.1B $1.3B 10.7% EBITDA as % of sales 22% 26% + 360 bps Contribution of WAVE JV to EBITDA margin 2% 3% Europe and Asia profitability down due t
Slide 12: Armstrong/Worthington JV (WAVE)
Armstrong/Worthington JV (WAVE) 50% - 50% global joint venture with Worthington Industries - 20+ years oldManufactures ceiling suspension systems (grid) with 8 manufacturing plants in five countriesLeverage Worthington's strength buying and forming steel, and Armstrong's strength selling and marketi
Slide 13: Global Revenue, Profitability and Product Mix
(CHART) Global Revenue, Profitability and Product Mix (1) Residential flooring products are sold in North America only *Considered traditional vinyl products ~50% of flooring sales 13 (CHART) 2013 Sales by Geography and Product Form (CHART) Residential (1) 59% Commercial41% Flooring Wood$535 2010 EB
Slide 14: Global Revenue Mix cont.....
Global Revenue Mix cont..... 14 Commercial~$600M Residential~$855M Total Business (CHART) Remodel70% New30% (CHART) Remodel75% New25% New vs. Remodel Channel / End-use Segment (1) Segment % of Business Retail 20% - 30% Education 20% - 30% Healthcare 15% - 25% Other 15% - 25% Office 5% - 15% Channel
Slide 15: Leadership
@smstrong: Leadership
Slide 16: Management Successfully Executing
Management Successfully Executing Majority of senior leadership team joined Armstrong after January 2010Earnings progress despite weak volume environmentBuilt competitive cost structureGrowth through organic investments, tactical acquisitions and product adjacenciesInnovation initiatives and renewed
Slide 17: Key Milestones
Key Milestones 17 2010 2011 2012 2013 2014 (1) U.S. Census Data(2) McGraw Hill Construction non - residential starts - millions of sq ft. Cost Reduction InitiativesPlant Closures Capital Market Activity Organic Investment Portfolio Management Management 2006 2007 2008 2009 2010 2011 2012 2013 2014 E
Slide 18: Strategy
Strategy 18 1. Optimize Product Portfolio Broad product offering and availabilityDrive mixNew product pipelineQuality leader 2. Drive Emerging Market Growth Completed two resilient flooring plants and ceilings plant in China during 2013 with Russian ceilings plant on scheduleTailor products for loca
Slide 19: Growth
Growth 19
Slide 20: Growth Opportunity Highlights
Growth Opportunity Highlights Developed markets growth initiativesConsolidate and leverage brand and market shareDrive price to cover inflationRealize mix and share gains through innovation, sustainability and new product introductionsArchitectural SpecialtiesArmstrong is uniquely positioned to serv
Slide 21: Growth From The Core
Growth From The Core 21 Results Business Model Strengths Strong Brand and Leading Market Share Across Businesses Track Record Of Price Increases > Inflation New Products And Improving Mix High operating leverage when volumes recoverLower cost structure = higher margins Recurring revenue from large i
Slide 22: Renewed Focus on Product Vitality
(CHART) Renewed Focus on Product Vitality Renewed Focus on Product Vitality 22 Commercial products take 1-2 years to gain traction given the lag from specification to installationLarge installed base and resulting annuity business drives a lower NPD rate for commercial productsComplex technical perf
Slide 23: Leadership in Product Innovation
Leadership in Product Innovation - We Make Ideas Become Reality 23 Alterna(tm) & Alterna Reserve - premium luxury vinyl tile flooring is the innovative alternative to stone and ceramic tile. Both Alterna collections are designed to capture the timeless look of natural stone tile flooring and ceramic
Slide 24: Architectural Specialties (AS)
Architectural Specialties (AS) 24 Critical attributes are design and aesthetics; functionality is an important added benefitLower volume, higher "touch", sometimes involving custom design and engineeringHigher price per unit, used for "statement" spaces and high-end commercial buildings Incremental
Slide 25: Architectural Specialties Global Footprint
Architectural Specialties Global Footprint Rankweil, Austria Armstrong factory Sales/engineering office Montreal, Canada Lancaster, PA Stafford, UK Paris, France Moscow, Russia St. Gallen, Switz. Dubai, UAE Shanghai, China Mumbai, India 25 Top global firms are doing more foreign projectsThe top 200
Slide 26: Emerging Markets Investments to Drive Growth
Emerging Markets Investments to Drive Growth Manufacturing investments in priority markets to make products designed for local consumptionCompleted two resilient flooring plants and ceilings plant in China during 2013 with Russian mineral fiber ceilings plant on schedule to begin shipping product in
Slide 27: Product Conversion in Emerging Markets Will Drive Growth
Product Conversion in Emerging Markets Will Drive Growth Improvements in building standards and product performance benefits are accelerating conversion 27 Transition to modern building standards drives growth in our product forms Mineral Fiber ceilings Drywall ceilings Resilient floors Ceramic floo
Slide 28: China
China Policy driven investment in healthcare, education, and mass transit drives growth that outpaces overall market 28 Resource commitment enhances foundation to drive differentiated future growth Two key market growth opportunitiesIncrease New Build penetration to developed market levels...>90% Co
Slide 29: Russia
Russia 3rd largest suspended ceiling market in the world with significant future growthArmstrong is # 1 - brought the category to Russia in 1992 29 Resource commitment enhances foundation to drive differentiated future growth Two key market growth opportunitiesIncrease New Build penetration to devel
Slide 30: Growth Engine Financial Performance
Growth Engine Financial Performance 30 Profit growth lags sales as plants start up, but catch up when utilization increases Market growth plus AS acquisition and JV drives historic growthPlant openings, priority sales and marketing investments, and tactical acquisitions drive future growth 12% CAGR
Slide 31: Growth Opportunities Summary
Growth Opportunities Summary Opportunities for growth in core markets that don't involve a recovery in the U.S. or EuropeArchitectural Specialties and emerging markets sales can double in 4 to 6 years and are both natural extensions of our core businessesGeographic expansionLocal manufacturing in Ch
Slide 32: Financial Overview
@imstrong: Financial Overview
Slide 33: Focused on creating shareholder value
Focused on creating shareholder value Performance through the cycleProfitable and cash flow positive throughout the downturnCost reduction and disciplined spendingAchieve price to cover inflationGrowth via recovery and aggressive organic investments / mid-cycle outlookROIC goal drivenStrong balance
Slide 34: Adjusted EBITDA History
(CHART) Adjusted EBITDA History(1) 34 ($430) ($195) $105 $15 ($50) $215 ($0) A history of driving Price > Inflation $370 ($ Million) (1) Management estimates. Leveraging our brand, commitment to innovation and leading market share positions to drive earnings in spite of significant market driven vol
Slide 35: Performance Through the Cycle
Performance Through the Cycle 35 Trough 2010 2013 "Mid-Cycle" McGraw Hill Construction non residential starts (3) 680 845 ~1,400 U.S. Housing Starts (000) 587 923 ~1,200 Plants (1) 35 32 37 Sales $2.65 Billion $2.72 Billion ~$4 Billion Adjusted EBITDA Margin 11.7% 13.6% ~20% ROIC(2) 1.3% 8.2% > 15%
Slide 36: "Mid-cycle" Path to Growth
"Mid-cycle" Path to Growth 36 (CHART) ~30% (CHART) ~90% (1) Armstrong specific initiatives to drive mix, share and price > inflation.(2) UK, Western Europe and Australia.(3) North America, U.K, Western Europe and Australia. (CHART) ~50% (CHART) ~45% (1) (2) (3) (1) (1) ($ Millions) ($ Millions) ($ M
Slide 37: Path to Growth - Adjusted EBITDA margin
Path to Growth - Adjusted EBITDA margin 37 (CHART) (CHART) Margin on Incremental Volume Ceilings 30% - 40% Resilient 25% - 35% Wood 25% - 30% 30% 20% 10% 0% 30% 20% 10% 0% High incremental margins on new business expected to drive increased margins in "mid-cycle"
Slide 38: Balance Sheet
Balance Sheet 12/31/2013 38 Maturity ProfileNo significant maturities until 2018Considerable covenant flexibility LiquiditySufficient liquidity to manage operations, and execute capital spend and restructuring plans (CHART) (CHART) $390M
Slide 39: Investment Highlights
Investment Highlights Diversified $2.7 billion global building products company with leading positions in most key markets and productsLeadership team executing strategy to drive strong EBITDA and ROIC growth despite weak end markets through disciplined focus on costs and pricing, driving organic gr
Slide 40: Financial Overview Appendix
Financial Overview Appendix 40
Slide 41: EBITDA Bridge - Full Year 2013 vs. Prior Year
(CHART) $16 EBITDA Bridge - Full Year 2013 vs. Prior Year 41 ($23) ($9) $29 $6
Slide 42: Key Metrics - Guidance 2014
2014 Estimate Range (1) 2014 Estimate Range (1) 2014 Estimate Range (1) 2013 (2) Variance Variance Variance Net Sales(3) 2,800 to 2,900 2,720 3% to 7% Operating Income(4) 275 to 300 262 5% to 15% EBITDA 400 to 430 371 8% to 16% Earnings Per Share(5) $2.55 to $2.80 $2.04 25% to 37% Free Cash Flow 60
Slide 43: 2014 Financial Outlook
2014 Financial Outlook $20 - $30 million vs. 2013Adjusted Gross Margin 100 to 150 bps vs. 201316.3% to 16.8% of sales$0 - $5 million vs. 2013 $30 - $40 million; Adjusted long-term ETR of ~39%(2) Sales(1) $625- $665 million; EBITDA $75 - $90 million $180 - $200 million < $5 million Raw Material & Ene
Slide 44: Full Year - Adjusted EBITDA to Reported Net Income
2013 2012 V EBITDA- Adjusted $371 $402 ($31) Depreciation and Amortization (109) (100) (9) Operating Income - Adjusted $262 $302 ($40) Foreign Exchange Movements (5) - (5) Cost Reduction Initiatives (18) (13) (5) Accelerated Depreciation and Impairments (not included above) - (12) 12 Impairment - (6
Slide 45: Management Team
@imstrong: Management Team
Slide 46: Matthew J. Espe, Chief Executive Officer and President
Matthew J. Espe, Chief Executive Officer and President In July 2010, Matthew J. Espe was appointed CEO of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. He brings 30 years of experience in sales, marketing, distribution and management in global manufacturing businesses to Armstrong fr
Slide 47: David S. Schultz, Senior Vice President and Chief Financial Officer
David S. Schultz, Senior Vice President and Chief Financial Officer Davis S. Schulz is senior vice president and CFO of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Mr. Schulz joined Armstrong in 2011 as vice president, finance for Armstrong Building Products. Prior, he served as CF
Slide 48: Victor Grizzle, Executive Vice President, CEO, Armstrong Building Products
Victor Grizzle, Executive Vice President, CEO, Armstrong Building Products Victor "Vic" Grizzle is executive vice president and CEO, Armstrong Building Products, in Lancaster, Pennsylvania. Mr. Grizzle has 23 years of experience in process improvement, sales, marketing and global business leadership
Slide 49: Thomas B. Mangas, Executive Vice President, CEO, Armstrong Floor Products Worldwide
Thomas B. Mangas, Executive Vice President, CEO, Armstrong Floor Products Worldwide Thomas B. Mangas is executive vice president and CEO of Armstrong Floor Products Worldwide, in Lancaster, Pennsylvania. Mr. Mangas joined Armstrong in February 2010 as senior vice president and Chief Financial Office
Slide 50: Thomas J. Waters, Vice President Treasury & Investor Relations
Thomas J. Waters, Vice President Treasury & Investor Relations Thomas J. Waters is Vice President, Treasury and Investor Relations of Armstrong World Industries, Inc. Mr. Waters joined Armstrong in 1998 as Manager, Capital Markets. Since then he has held the positions of Director of Investor Relatio
Slide 51: Kristy Rohrbaugh, Investor Relations Manager
Kristy Rohrbaugh, Investor Relations Manager Kristy Rohrbaugh is Investor Relations Manager of Armstrong World Industries, Inc., in Lancaster, Pennsylvania. Ms. Rohrbaugh became Investor Relations Manager in December of 2010 and has responsibility for managing all external investor communications. M
Slide 52: Investor Relations Contact Information
Investor Relations Contact Information 52 Kristy Rohrbaugh, CPA, MBAInvestor Relations ManagerArmstrong World Industries2500 Columbia AvenueLancaster, PA 17604P: 717-396-6354F: 717-396-6128E: ksrohrbaugh@armstrong.com Thomas J. WatersVP, Treasury and Investor RelationsArmstrong World Industries2500
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